Ownership of Assets and Considerations in Insurance Programs

by Rick Davis, CPCU

Extensive tax and estate planning for successful business owners and families is often the result of a long process of assessment, education and implementation on the part of a number of trusted advisors.  As a professional who analyzes private client and business risk management and insurance programs, I often find that the planning isn’t always adequately reflected in clients’ property & casualty programs.  This lack of follow-through can put the planning goals at risk.  In this article I will challenge you to encourage your clients and their other advisors to consider “everything that is owned, everything subject to a legal agreement, and everything they do” within their risk and insurance plans when considering how to best protect assets.  Client programs need to incorporate the financial and estate planning you have done. 

Everything Owned and Everyone Included: 

When planning has resulted in real or personal property being titled in entities (rather than in an individual’s name), understanding who is insured under the policies is critical.  All individuals and entities require their own coverage as title owners, as well as those maintaining the assets. Not only ownership, but “maintenance and use” can be considerations for legal liability for injury and property damage in lawsuits.  Are all pertinent parties named as insureds?  If they are on the same policy, are the limits sufficient to protect all the assets of multiple entities?  If all parties aren’t protected or the limits aren’t adequate, the value of the assets that were the subject of protection may be at risk to satisfy a legal action.  

Scenarios for consideration often overlooked:

• A family vacation home is titled in the name of an LLC.  The Generation 1 (“Gen 1”) individuals still maintain the residence and their contents fill the location.  Making sure the LLC is covered for potential property and liability losses seems obvious as it is the title owner. However, the Gen 1s still need coverage for their contents and potentially for actions arising from maintaining and residing in the home.  From an “insured” standpoint on the policies, they are distinctly different entities.  The assets are at risk if individuals are not named as insured or limits are insufficient.  Typically, both the Gen 1s and the LLC are named for property and liability protection, including any umbrella coverage (unless they are automatically covered by policy definition). 

• A business owner has operated a business in a corporate entity for years. The business’s assets consist predominately of the client list and goodwill.  The owner purchases the building that the business occupies (with other tenants in the building).  Titling the real estate in a separate entity from the operating business is typically advisable.  This protects the assets of the business and real estate separately, and potentially the reputation of the operating business whose goodwill is a significant part of its value.  Often, the building owner and building are simply added to the insurance policy of the business owner. Clients should carefully consider whether one policy covering the operating business and the real estate owner is wise - for adequacy in type of protection and what could be shared limits on the policy.  Examples include:

  • Is the landlord coverage adequate for potential lawsuits from other tenants? 

  • Is any potential loss of rental income covered for the building owner from all tenants if uninhabitable after a loss? 

  • Does the building owner have a lease with the operating business that substantiates the loss of rental income if there is a claim? 

  • Is the loss of business income for the operating business covered on the insurance if they have an interruption in operations? 

The details and limits on the insurance need to be adequate to protect the business and real estate entities, whether on one or multiple policies.    

• The graduate student offspring seeks to purchase a new car. There are price, credit or tax incentives and the dealer suggests that the car be titled in both the parent’s and the child’s names.  The car is purchased and insured in both names by the adult child. What is the potential risk to the co-owner parent?  They should realize that, as a co-owner, they will likely be a party to any potential lawsuit regardless of who drives the car.  A significant other, roommate or friend that causes an accident and lawsuit will potentially involve the parent’s insurance program and it could result in depositions and court appearances in the location of the accident.  At a minimum, the car should be covered on the parent’s umbrella policy to protect their assets, but it is best to title the car initially in the child’s sole name or to transfer the title (and risk) to the child alone as soon as possible thereafter.  A similar assessment applies to joint purchases of condos or homes; anything that happens at the location may result in a lawsuit naming all owners. If you find a client has already done it, then they should be sure it is protected in their insurance program with the appropriate insurance limits at a minimum!     

• Real estate – home, commercial building, agricultural parcel - is inherited by a client and their siblings equally.  An assessment as to the maintenance and occupancy, existing insurance policies and long-term plans should be reviewed to understand the client’s potential exposure.  Existing insurance typically covers the estate, but new policies need to reflect the new owners as soon as the title is transferred.  We often find that one sibling may have more at-risk financially, and proper assessment of titling to protect all siblings hasn’t taken place by the estate attorney at the time of settlement. Emotional attachment to inherited property can be significant, especially in far-off locations, and that sometimes results in the asset being overlooked and not connected to the risk management plan of all siblings. Properties involving farming, waterfront locations, employees or contractors, and vacant land where hunting may occur, all present significant risk that should be reviewed from legal, tax, employment and risk management perspectives, preferably before title is transferred and the estate settled. 

Everything Subject to a Legal Agreement:

Legal contracts permeate every area of life.  From the fine print of a ticket stub to leases, building and contractor agreements, legal obligations are spelled out and agreed to by all of us.  The degree to which clients review the details is always important and can create potential liability where it may not, or need not, exist.  While education about potential liability may be overlooked, this is an area of risk that may often be managed as part of a solid plan.   

• Parents co-sign leases for college-aged or adult offspring.  When a parent co-signs, you may be as responsible for all that takes place as the occupants of the location.  Best advice – have your clients financially guarantee, not co-sign!  The former has a financial obligation, while the latter has a legal obligation.  If they have co-signed a lease, be sure it is insured just as if they resided there, especially for liability. 

• Independent contractors sometimes present contracts for services that can be one-sided, create potential legal obligations via hold harmless clauses and not include any requirement that they provide protection for clients. For example, the contractor may say they have insurance, but have no requirements for the types or limits of insurance – general liability, workers’ compensation, automobile liability - at a minimum – and provide a certificate of insurance with details before they commence work.  An insurance requirement in a contract will provide recourse for recovery for damage to clients or their neighbors, and give assurances that a worker or a neighbor won’t have to file a lawsuit against a property owner as the only option for damages. Remember that most contractors have a corporate veil protecting them from personal liability for acts of the business, while property owners typically do not.   

• Travel results in clients renting cars regularly.  Understanding how their auto insurance will cover them, for what and if there are any limitations.  Clients who own multiple properties typically do extensive planning when titling the property, but don’t consider how renting cars for a longer period of time, or outside of the US, requires the same diligence.  Non-owned auto coverage is defined in all policies, and typically have time, territory and vehicle size limits. The rental agreement will spell out the liability coverage provided (which is often the minimum required in the jurisdiction) and the rest is the responsibility of the renter.  If not careful, damages could be largely uninsured and paid out-of-pocket without review.      

Everything You Do:

We’ve all heard that actions have consequences.  While tax and estate planning are rooted in protecting an individual’s holdings from certain consequences, potential personal legal responsibility is often not among them.  “What your clients do” from renting a jet ski on vacation, to playing a round of golf, to making decisions as a leader of their place of worship can all result in damages to others, and put them at risk. As they are engaged in these actions personally, assets titled in their name could be vulnerable.  Understanding their vulnerabilities and how they might be limited, can help them make informed decisions.      

• Successful clients serve as Directors on Boards for a variety of reasons.  For for-profit companies, it may be for industry expertise or connections.  For non-profit organizations, it can be for the same expertise, influence in the community and connection to the mission.  In almost all cases it involves some ability to raise funds.  Key responsibilities typically include financial, strategic, legal and ethical governance obligations.  As such, members of Fiduciary Boards are accountable, and may be held legally responsible, putting their personal assets at risk.  An assessment of these risks should include:

• Their role on the Board and the details of the Directors & Officers Liability insurance (“D&O policy”)

• How large is the Board?

• What are the various coverages and limits of the D&O policy?  

• Consider if policy limits are shared by all insured parties to a claim and, if exhausted, do the individuals bear the defense costs if there isn’t a director indemnification clause in the bylaws? 

Are defense costs included in, or in addition to, the D&O policy limits? The average securities class action settlement in H1 2024 was $26 million with the median settlement of $9 million [1]. 

• Traditional risks including economic factors, bankruptcy trends, environmental, social and governance (“ESG”) issues continue to fuel lawsuits while cyber and artificial intelligence (“AI”) are adding to potential director accountability. ^[2] 

After a thorough assessment, sometimes consideration of serving on an Advisory Board or Committee vs. a Fiduciary Board should be discussed to protect a client’s reputation and assets.

• A version of “to whom much is given, much is expected” often compels clients to host events, lend their name as a headliner to committees, and even establish foundations to support worthy efforts.  These philanthropic efforts may subject them to risk, and may require the same due diligence as other endeavors. 

  • Who are the contractors being used and who is reviewing their contracts and insurance certificates?

  • Has the sponsoring organization confirmed the liquor liability limit for themselves, the host and their vendors? 

  • Are valets parking cars and how are they insured? If clients have a foundation, are they sponsoring outings and is there protection if someone is injured?  

The goal of a thorough review is to ensure the assets that have been marked to do good are available to further the mission, not to satisfy a legal award.

By now you may have recognized some clients or conversations that are familiar.  I hope it has helped clarify that clients with significant assets require comprehensive planning that does not end with your efforts.  The results of your planning should be complimented with a thorough risk management and insurance assessment, and program design review to ensure long-term success for your clients’ planning goals.       

[1] National Economic Research Associates 2024 H1 Update.  

[2] Sedgewick and Insurance Information Institute

Rick Davis, CPCU is Founder and President of Magis Insurance Group, LLC of Wayne, PA.  Davis and his firm serve the property & casualty needs of successful business owners and families, and work closely with their trusted advisors to ensure technical review and comprehensive program design and management to protect client assets.  Their company name, Magis, Latin meaning “to do more,” embodies their goal in serving clients and the community.